The thawing relationship between Japan and China is creating new investment opportunities, particularly in startup-related areas that have been overlooked by traditional lenders, said veteran Hong Kong investor Victor Chu at a conference in Tokyo Tuesday.
"Over the last 10 years, the political temperature between Tokyo and Beijing has not been what it should be -- but I think, today, we're back at 'normal'," Chu told the audience at the Nikkei Global Management Forum.
"Down the road, the opportunities have huge potential," he said, as long as the historical rivals continue to mend fences.
Chu, a lawyer and well-known member of the Hong Kong finance establishment, singled out financial technology -- and online banking in particular -- as an overlooked investment area bridging the two markets. "We would like to explore -- and I mean this with real sincerity -- what I call a virtual bank in Japan, where the focus is on funding startups and newly formed companies," he said, adding that big banks had not found it easy to serve this area.
Such a bank could be bolstered by Chinese remittances, a stream of outbound capital normally directed at Hong Kong, and for which Chinese citizens have an annual allowance of $50,000.
"The size of the Chinese market and population means the potential is huge, and nowhere near saturation. I think if we're able to create a virtual bank, we can attract Chinese capital ... and also help fill the gap of the banking market here," said Chu, referring to Japan.
He also noted that Japan's biomedicine,elderly home care and energy conservation sectors were also ready for engagement with the Chinese market.
Chu is chairman and chief executive of private equity company First Eastern Investment, which built its reputation from its early venture capital activity in China, entering in the late 1980s when the market was an unknown frontier for Hong Kong investors. The past 30 years had seen his company make over 200 investments in 52 Chinese cities, said Chu.
Chu pointed to the compound tensions of the U.S.-China trade war and stock overvaluation as the driving forces behind the recent rout in global technology stocks. But unlike the dotcom bubble of the 1990s, today's technology companies largely displayed "real substance and real innovation," he said.
"Now is not the time to borrow money to invest in tech stocks, but is the time to wait, let the dust settle," he said, "and there could be very good contrarian opportunities."
The Chinese investment environment of today is vastly different to the one First Eastern entered three decades ago, Chu told the audience. "Thirty years ago, when the inspector from the environmental regulatory body came to inspect the factory, normally a good lunch would be able to get clearance. Some friendly guanxi would do the trick," he said. Guanxi means relationship in Mandarin and in this case, it refers to the practice of using connections and relationships to get business done.
Today, however, such regulatory examinations tend to be stricter than global standards, he said.
In Japan, Chu is known as co-founder of Peach Aviation, the low-cost carrier that is aiming to complete a merger with All Nippon Airways' Vanilla Air by the end of fiscal 2019, and in which his company will retain a 7% stake.